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Is Honghua Group Limited's (HKG:196) CEO Being Overpaid?

The CEO of Honghua Group Limited (HKG:196) is Mi Zhang. This report will, first, examine the CEO compensation levels in comparison to CEO compensation at companies of similar size. Then we'll look at a snap shot of the business growth. And finally - as a second measure of performance - we will look at the returns shareholders have received over the last few years. This method should give us information to assess how appropriately the company pays the CEO.

How Does Mi Zhang's Compensation Compare With Similar Sized Companies?

Our data indicates that Honghua Group Limited is worth HK$1.2b, and total annual CEO compensation was reported as CN¥1.8m for the year to December 2018. While we always look at total compensation first, we note that the salary component is less, at CN¥631k. We further remind readers that the CEO may face performance requirements to receive the non-salary part of the total compensation. We looked at a group of companies with market capitalizations from CN¥710m to CN¥2.8b, and the median CEO total compensation was CN¥2.1m.

Now let's take a look at the pay mix on an industry and company level to gain a better understanding of where Honghua Group stands. Speaking on an industry level, we can see that nearly 63% of total compensation represents salary, while the remainder of 37% is other remuneration. Honghua Group sets aside a smaller share of compensation for salary, in comparison to the overall industry.

That means Mi Zhang receives fairly typical remuneration for the CEO of a company that size. This doesn't tell us a whole lot on its own, but looking at the performance of the actual business will give us useful context. The graphic below shows how CEO compensation at Honghua Group has changed from year to year.

Is Honghua Group Limited Growing?

Over the last three years Honghua Group Limited has seen earnings per share (EPS) move in a positive direction by an average of 114% per year (using a line of best fit). In the last year, its revenue is up 5.2%.

This demonstrates that the company has been improving recently. A good result. It's good to see a bit of revenue growth, as this suggests the business is able to grow sustainably. Shareholders might be interested in this free visualization of analyst forecasts.

Has Honghua Group Limited Been A Good Investment?

Given the total loss of 66% over three years, many shareholders in Honghua Group Limited are probably rather dissatisfied, to say the least. So shareholders would probably think the company shouldn't be too generous with CEO compensation.

In Summary...

Mi Zhang is paid around what is normal for the leaders of comparable size companies.

We think that the EPS growth is very pleasing, but it's disappointing to see negative shareholder returns over three years. Considering the the positives we don't think the CEO pays is too high, but it's certainly hard to argue it is too low. CEO compensation is an important area to keep your eyes on, but we've also identified 3 warning signs for Honghua Group (1 is concerning!) that you should be aware of before investing here.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.